Structure and Content of a lease Flashcards
What is the purpose of a lease?
A lease allows a tenant to use a property for a set period in exchange for rent paid to the landlord. Leases outline the responsibilities of both parties, including repairs, insurance, alterations, and use of the property.
Describe the typical structure of a commercial lease.
A typical commercial lease includes:
● Prescribed clauses summarizing key details for Land Registry registration (for leases after June 19, 2006).
● Commencement, parties, and property details.
● Definitions to simplify language.
● Grant of the lease, specifying the term (fixed, periodic, or at will).
● Ancillary rights for the tenant (e.g. parking).
● Rights reserved for the landlord (e.g., repairs).
● Rent details, payment schedule, and review provisions.
● Tenant and landlord covenants, outlining responsibilities.
● Landlord’s right to enter for breaches.
● Re-entry and forfeiture provisions.
Explain the difference between a fixed term lease and a periodic tenancy.
● A fixed term lease has a defined end date. At expiry, it terminates automatically without notice.
● A periodic tenancy continues indefinitely, renewing at the end of each period (e.g., month-to-month). It ends with the required notice period.
What is a tenancy at will and when might it be used?
A tenancy at will is an informal agreement where a tenant occupies a property with the landlord’s permission. Either party can terminate it at any time. It’s less common in commercial settings but might be used between family members or when waiting for a formal lease to start.
Differentiate between absolute, qualified, and fully qualified covenants.
● An absolute covenant prohibits the tenant from performing a specific action entirely.
● A qualified covenant allows a specific action only with the landlord’s prior consent.
● A fully qualified covenant requires the landlord’s consent, but the landlord cannot withhold consent unreasonably.
What does a tenant’s covenant to repair entail?
A covenant to repair requires the tenant to maintain the property in good condition, restoring it by renewing or replacing parts, but not replacing the entire structure. This does not obligate the tenant to return the property in a better condition than it was initially received.
Explain the insurance arrangements in a typical commercial lease.
The landlord typically takes out insurance, passing the cost to the tenant as insurance rent. The landlord is usually obligated to use insurance proceeds to reinstate the property following damage. The lease may address rent suspension during reinstatement and termination if reinstatement is impossible.
How do alterations clauses typically categorize types of alterations in a lease?
Alterations clauses typically differentiate between:
● Alterations affecting the building’s structure and exterior.
● Non-structural interior alterations.
● Alterations affecting service media (e.g., heating).
● Demountable partitioning.
When can a tenant make alterations under a typical commercial lease?
A tenant may make alterations under the following conditions:
● Absolute covenants: The lease may entirely prohibit specific alterations, such as structural changes.
● Section 3 of the Landlord and Tenant Act 1927: Allows tenants to serve notice on the landlord for proposed improvements. The landlord can object, and the tenant can apply for court authorization if the improvements enhance the property’s value. The landlord may offer to carry out the works themselves for an agreed rent increase.
● Qualified and fully qualified covenants: These may permit non-structural alterations or service media changes with the landlord’s consent, which may involve a license to alter specifying conditions.
● Demountable partitioning: Landlords may allow these without consent due to minimal impact on the building.
How do user covenants control property use in a lease?
User covenants may:
● Restrict use to a single purpose: E.g., only as a restaurant.
● Allow specific uses: E.g., restaurant or other uses within a particular Use Class as defined by the Use Classes Order.
● Require landlord approval for change of use: This may be a qualified or fully qualified covenant, where the landlord’s consent cannot be withheld unreasonably.
How do planning covenants relate to property use?
Planning covenants in a lease often require the tenant to comply with planning regulations. The landlord might retain control over planning applications to ensure the property’s use aligns with their strategy.
How is the annual rent typically made payable under a lease?
The annual rent is usually payable in four equal installments, often in advance, on the historical quarter days (25 March, 24 June, 29 September, and 25 December). The lease should clarify apportionment for partial periods and the payment method.
What are the options for reviewing rent during the lease term?
Common rent review options include:
● Fixed increase: Rent increases to predefined amounts at set dates.28
● Index-linked: Rent adjusts according to an external index, like the Retail Prices Index.29
● Tenant’s receipts: Rent is tied to the tenant’s turnover or other financial metrics.29
● Open market rent review: Rent is periodically reassessed based on the prevailing market value.
Explain the concept of a hypothetical lease in an open market rent review
The hypothetical lease assumes a willing landlord and a willing tenant negotiating a new lease on the review date, disregarding the existing tenant’s occupation. It helps determine a fair market rent.
How does the alienation covenant control the tenant’s ability to dispose of the property?
The alienation covenant restricts the tenant’s actions like assignment, underletting, charging, sharing occupation, or parting with possession, typically requiring landlord consent.
